Ironically, the very capabilities that your organisation has developed over time, and that have made it successful in the past, can be the same ones that are anchoring it to its current trajectory. If the purpose of strategy is to …

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Ironically, the very capabilities that your organisation has developed over time, and that have made it successful in the past, can be the same ones that are anchoring it to its current trajectory. If the purpose of strategy is to change an organisation’s trajectory – to one that leads to an improved future – then the influence of these potentially ‘anchoring’ organisational capabilities needs to be assessed and actions taken to weaken some and eliminate others.

All organisations have a set of organisational capabilities; they are the ‘muscles’ that an organisation has built up over time that enable it to do specific things very well. Examples include process management, innovation, compliance, acquisition integration, cost control, service management, and health and safety. While all organisations need a set of generic organisational capabilities, like the examples given above, they also need organisational capabilities that are specific to their industry. For example, exploration in the oil and gas industry, merchandising in retail, fleet management in car rental, patient care in health services and fundraising in the charity sector. Developed over time organisational capabilities enable the organisation to do what it does, well.

Organisational capabilities versus individual competencies

It’s important to make a distinction between organisational capabilities and individual competencies. Whereas competencies are possessed by individuals, capabilities reside within organisations. Obviously, it’s not possible for an organisation to have capabilities without having competent people. But not everyone in an organisation needs to be highly intelligent or deeply experienced, as organisational capabilities develop over time, through application and practice. As previously said, in many respects they are the muscles of the organisation, which become stronger through use. Also, the more embedded they become, the greater they define organisational culture. They are also the source of what Charles Duhigg, in his book The Power of Habit, calls an organisation’s habits, where employees instinctively and collectively do things in a particular way without consciously knowing how or why.

Organisational capabilities are formed from a combination of shared mental models and frameworks, common language, beliefs and mindset, processes and practices, conventions and norms, shared experiences and individual skills developed over time. Significantly, as they become embedded within an organisation, they are not lost when key individuals leave.

It’s also important to make the distinction between organisational capabilities and other types of capabilities. For example, IT departments now focus on building business capabilities rather than developing technical capabilities, as was previously the case. An example is the business capability to run a credit check on an individual, as opposed to the technical capability to interface with an external credit rating agancy. While this is a positive shift of focus, these IT-enabled business capabilities should not be confused with organisational capabilities, as they provide only one component of an organisational capability – the technology platform on which they can be executed.

Anchoring organisational capabilities

Organisational capabilities create organisational habits that become the source of what organisations instinctively do. And, if an organisation has been successful in the past it’s reasonable to assume that these organisational capabilities played an important role. To put it another way, if an organisation’s capabilities have been the source of its past success, it’s often assumed that they’ll be the source of its future success. But if future success depends upon changing trajectory, then this is certainly not the case. As Tracy Goss argues in her book The Last Word On Power, “it’s natural for people and organisations to fall back on what they know and do best when the going gets tough”. She calls this their “winning strategy”. It’s a bit like doing more of the same but at a higher volume. As Goss puts it, “we may not recognise that we have our winning strategies, and we may not be able to describe them, but we instinctively act in the belief that they will continue to deliver us success”. Over time, our winning strategies become part of who we are. It’s the same with organisations; when the going gets tough, the default reaction is to fall back on its winning strategy, a strategy that’s enabled by its existing organisational capabilities.

The world of IT offers a common example of this where its existing organisational capabilities anchor it to its current trajectory. Most IT organisations deliver what is expected of them; they keep the systems running, fix faults when they arise, deliver enhancements when requested and manage the risks that come with a complex – often legacy – installed base. They do everything they can to prevent the systems from going down. Continually meeting these same, unwavering expectations results in a set of organisational capabilities that are entirely appropriate for the context as the IT team sees it – keeping the business running and minimising the risk. Should the context change – for example, following a decision to replace core legacy systems with a modern, more integrated platform – existing organisational capabilities are likely to be out of line with those that are needed. Add to this a decision to use an offshore IT services provider, and you create a context where most IT organisations struggle, particularly when they are also expected to maintain legacy systems during the transition. It’s therefore not surprising that a vast number of IT transformation projects overrun their budgets and miss deadlines, with many ultimately failing to deliver their intended outcomes.

By their very nature, organisational capabilities become omnipresent as they pervade the organisation, so much so that it can be hard to recognise that they exist. In many respects, they act like invisible currents, keeping the organisation on its current trajectory. The challenge comes when an organisation acknowledges that it needs to change its trajectory, but its existing organisational capabilities are so strong that it’s difficult, if not impossible, to change direction.

The Blockbuster example

The classic example of an organisation whose organisational capabilities prevented it from changing trajectory was Blockbuster, the once highly successful video rental business established in the 1980s. At its peak it employed more than 60,000 people globally and was opening a new store every 17 hours. The organisational capabilities it developed during its growth included the ability to locate, open and run stores; establish franchise agreements; manage warehouses and ship video cassettes, and later DVDs and video games. When its context dramatically changed with the advent of broadband these organisational capabilities were not the ones needed for an online video-streaming business. As a result it was not able to change its trajectory and in 2010 the once 8 billion dollar business sought protection against bankruptcy.

Changing trajectory requires new organisational capabilities

If existing organisational capabilities can anchor an organisation to its current trajectory then it is axiomatic that different organisational capabilities will be needed to ‘pull’ an organisation onto its target trajectory. Equally, the influence of some of the existing capabilities will need to be either weakened or eliminated.

]]>Project Portfolio Management – An Organisational Capability for Changing Your Trajectoryhttp://formicio.com/index.php/archives/7381
Fri, 21 Jul 2017 18:33:47 +0000http://formicio.com/?p=7381If an organisation is serious about changing its trajectory, to one that takes it to its target – as opposed to its default – future, then it needs to execute a portfolio of change initiatives. These initiatives – whether they …]]>If an organisation is serious about changing its trajectory, to one that takes it to its target – as opposed to its default – future, then it needs to execute a portfolio of change initiatives. These initiatives – whether they are programmes, projects or operational changes – need to be selected, prioritised, scheduled, reshaped, rescheduled and culled as the journey unfolds and the context changes. The organisational capability for doing this is project portfolio management. While project portfolio management is something all organisations understand at a conceptual level, few have actually mastered its application. Why is this? In this article Peter Boggis and David Trafford offer seven reasons why it remains a challenge for most organisations, and why project portfolio management needs to be developed as an organisational capability.

All organisations are on a trajectory, a path that’s taking them to a future. For some this will be their default future, which is the place they will end up if they take no action other than that currently planned. Other organisations will be aiming for a different future, one that is considered a more attractive place to be. But changing an organisation’s trajectory is not easy, with research showing that most strategies and transformation programmes fail to deliver their intended outcomes. Some figures suggest that the true success rate is less than 5%. If this figure is true, and even if it was 10 times greater, it is not what it should be. So, what can be done to increase the chances of success? While there is no easy answer, it’s worth noting that changing an organisation’s trajectory – to one that leads to a better future – essentially involves three challenges. Firstly, deciding what future to aim for or, to put it another way, deciding on your strategic intent. Secondly, deciding the actions needed to change the current trajectory and translating them into a coherent set of change initiatives. And thirdly, managing the delivery of the change initiatives – usually in the form of programmes, projects and operational changes over time. If programme and project management is a tool for managing the delivery of the change initiatives, what’s the tool for managing the collection of change programmes and projects? In our view it’s portfolio management.

What is project portfolio management?

The Project Management Institute defines portfolio management as the ‘centralised management of one or more portfolios that enable executive management to meet organisational goals and objectives through efficient decision-making on Portfolio, Programme, Project and Operational choices’. Furthermore, they argue that ‘organisations with good Portfolio Management practices and disciplines regularly out-perform those that don’t’. But what does ‘out-perform’ mean in this context? Is it that they are commercially more successful, that they deliver their programmes and projects on time and to budget, or do they get a better return on their investments? Or is it some combination of these things?

In our view, portfolio management is the process of managing the initiatives – essentially investments – aimed at changing an organisation’s current trajectory to one that’s aligned with its strategic intent. It’s about making informed choices on what to do and when; it’s about stopping initiatives that are no longer having the desired impact; it’s about reshaping existing initiatives to have more impact; it’s about instigating new initiatives as the context changes and making the mid-course corrections that are inevitably needed. In essence it is a control mechanism for the executive team to monitor and direct their investments aimed at changing their organisation’s trajectory.

Why is project portfolio management important?

It’s important for two reasons. First, most organisations have more ideas on what they would like to do to improve their future than they have resources – financial, people, capability and capacity – available. As a result, change investments – and that’s what they are – need to be selected (and rejected), prioritised, scheduled, and indeed culled, as the organisation travels along its target trajectory. Without effective portfolio management there are likely to be too many change initiatives (programmes and projects) calling on the same resources to deliver multiple – often conflicting – strategic intents.

Second, achieving alignment across the organisation. Over the past 40 years, organisations have not only become larger, they’ve also become increasingly complex. Complexity is a result of the number of components in a system and their degree of interaction. The greater the number of components – divisions, business units, departments, distribution channels, territories, customer segments, regulators, suppliers and partners – the greater the organisational complexity. The natural entropy of an organisation is towards greater complexity – often as a result of incremental changes to meet evolving customer needs and optimise local performance. But also as a result of organisational design that places emphasis on the hierarchical decomposition of the organisation into ‘manageable’ units. The logic being that if the organisation is broken down into ‘manageable units’, each led by a manager who is accountable for the performance of their unit, the greater the performance of the organisation as a whole. This is true to a degree, but the risk is that the organisation ends up pulling itself in different directions, is not aligned in its actions and wastes resources on initiatives that are not aimed at changing the organisation’s trajectory. Very rarely is the strategy for the organisation as a whole the sum of the individual business unit strategies. Or, to put it another way, the initiatives aimed at changing the individual business unit trajectories are rarely aligned to those needed to change the trajectory of the organisation as a whole.

Why does project portfolio management remain a challenge for most organisations?

Over the years, we have found that project portfolio management is something all organisations understand at a conceptual level, but few have actually mastered its application. Why is this?

Too much focus on the ‘mechanics’ and use of software tools
While process is important, sometimes the resulting procedures, templates and software tools become the end in themselves, rather than a means to an end. Yes, there needs to be a consistent way of defining a project, and for this to be captured in a software tool that enables others to view and evaluate, but this alone will not result in a balanced portfolio. Creating a balanced portfolio that matches need with resources; risk with reward; and the number of projects with the organisation ability to absorb the change, is a significant challenge that requires thought and careful planning. Portfolios that are balanced and aligned with the organisation’s strategic intent can only result from constructive dialogue across the executive team – often involving difficult conversations and painful choices – rather than the outcome of a ‘mechanical’ process.

Delegating accountability to the Portfolio Management Office
Creating a project (and programme) management office (PMO), and appointing a director of portfolio management does not mean that executives can abrogate their accountability. Yes the PMO can introduce standard templates, facilitate the process, establish discipline and provide insight into the impact that the current portfolio will have on changing the organisation’s trajectory. While it has accountability for maintaining the portfolio, it does NOT have decision rights on the contents of the portfolio – this rests with the organisation’s leadership.

Looking for the answer in the decision criteria
It’s all too wrongly assumed that if the criteria for deciding which projects make it into the portfolio was clearly defined, the rest would be easy. Surely if x percent was on mandatory/regulatory projects, y percent on operational improvements, z percent on strategic, of which a third was of ‘digital’ initiatives the PMO should be able to come up with a portfolio that would be acceptable to all? As previously argued deciding what projects (which are actually investments) go into the portfolio, and which are removed, is about making informed choices, not executing an algorithm. Yes, data is required, but its purpose is to inform, not decide – that is the role and accountability of the leadership team.

Lack of clarity of strategic intent
Having said the answer is not in having a set of criteria, there is an overarching criterion that needs to be very clear – and that is the strategic intent of the organisation. After all, the whole purpose of the portfolio is to decide and manage the change investments aimed at redirecting the organisation’s current trajectory, and putting it on a path that’s aligned with its strategic intent. Without clarity of strategic intent the best that could be achieved is a portfolio of initiatives aimed at improving what’s currently in place. In effect ensuring that the organisation continues on its current trajectory of strategic reality – albeit more efficiently.

Organisational silos
As previously discussed, most organisations are hierarchically decomposed into business units and functions that pursue their own individual strategies. As a result, there is little ‘horizontal’ integration across the organisation – few enterprise-wide synergies – and no ‘collective’ strategy. Without a collective strategy an organisation will pull itself in multiple directions – and in doing so have very little chance of successfully changing its trajectory.

Expecting too much of the IT function
While the IT function may have greatest need for clarity of the portfolio – simply because most change initiatives involve changes to IT systems to a lesser or greater degree – they should not be either seen, or asked, to manage the portfolio. Admittedly, they are in a unique position to view the organisation as a whole but their role is to build digitally-enabled propositions not develop business strategy – which is represented by the portfolio. Furthermore, the portfolio is in effect the IT function’s ‘order book’ against which it is expected to deliver.

Lack of collective leadership
If the purpose of portfolio management is to manage the initiatives aimed at changing the trajectory of an organisation, and changing trajectory requires people to change what they do and how they do it; it’s unreasonable to expect them to commit to these changes unless they’re confident they will succeed, and that the benefits of the future state are worth the pain of transition. And the principal source of this confidence comes – or doesn’t – from the organisation’s leadership.

However, if the leadership team is not aligned, either on the strategic intent or the trajectory by which it will be realised, that confidence will be lacking. And it’s not just what leaders say that instils confidence; it’s what they do and how they behave. If they collectively act as one, use the same language and exercise judgement based upon the same criteria, then it will be evident they are aligned and exercising collective leadership as opposed to individual leadership. Changing trajectory requires everyone – starting with the leadership group – to pull in the same direction. To put it another way, if the priorities and resultant actions of leaders are not in line with those of the project portfolio, the integrity of the portfolio will be undermined and become ineffective.

Project portfolio management is an organisational capability

So, what distinguishes organisations that are good at project portfolio management from those that are not? Our view is that they have developed portfolio management as an organisational capability. Organisational capabilities are the ‘muscles’ of the organisation that get stronger the more they are exercised. Also, the more embedded they become, the greater their impact on organisational culture. They are formed from a combination of shared mental models and frameworks, common language, beliefs and mindset, processes and practices, conventions and norms, shared experiences and individual skills developed over time. Significantly, as they become embedded within an organisation, they are not lost when key individuals leave.

Final thought

The ability to deliver projects successfully is important as, individually and collectively, they change the trajectory of the organisation to one that is aligned to its target future. While this capability is necessary it is not sufficient as the collection of projects need managing. They need managing in the sense that they need selecting, prioritising, scheduling, rescheduling and culling as the context changes. The difference between a collection of projects and a portfolio of projects is that they are actively managed using the principles, techniques and practices of portfolio management.

]]>Setting a Trajectory to a Digital Futurehttp://formicio.com/index.php/archives/7297
Mon, 17 Apr 2017 13:44:35 +0000http://formicio.com/?p=7297If an enterprise is serious about becoming more digital then it needs to rethink how the business and IT parts of its organisation can better use their different perspectives and complementary capabilities to turn an idea for a digital customer …]]>If an enterprise is serious about becoming more digital then it needs to rethink how the business and IT parts of its organisation can better use their different perspectives and complementary capabilities to turn an idea for a digital customer experience from concept to reality as seamlessly as possible. David Trafford and Peter Boggis believe that to achieve this a new form of relationship model is needed: a model that’s based upon a shared language of digital collaboration that brings their respective world-views together in constructive dialogue.

All organisations are changing their trajectory to some degree; a change in trajectory that will take them to a more digital future. In fact IDC estimates that by 2019, companies around the world will have spent a total of $2.1 trillion on digital transformation with the aim of delivering more products and services digitally. Examples are General Electric, which has invested well over a billion dollars on transitioning to an industrial infrastructure business, underpinned by an industrial, data-analytics-based internet, and the UK Government which has recently announced its strategy for developing a world-leading digital economy that works for everyone.

Many organisations start their digital transformation by mapping out target ‘digital customer journeys’; but the real challenge is realising these journeys with what is technologically possible – not so much the newer digital technologies, but more the legacy applications that make up the IT landscape – a landscape to which the new digital applications will inevitably need to integrate. In many respects, it’s this legacy IT landscape that acts as a powerful navigating force, making it difficult for many organisations to transition to a digital trajectory. And it’s not only the more established organisations that experience this constraint: many of the digital enterprises that have emerged in recent years have actually been built upon a foundation of legacy applications.

In many respects this challenge is not new. From the early days of computing, it has been a continuous struggle for IT organisations to accommodate the ever-changing needs of their business colleagues, while at the same time ensuring that existing applications are well maintained and continue to operate smoothly. What’s different now is that technology is advancing at a faster-than-ever rate, and business colleagues are becomingly increasingly frustrated at the pace at which their IT colleagues are able to respond to the business opportunities offered by digital technology.

What lies at the heart of successfully transitioning to a more digital trajectory is how business and IT colleagues work together in defining and realising a digital future – a way of working that has not fundamentally changed since the early days of computing. This working relationship was predicated on the assumption that business colleagues focus on defining business requirements and IT colleagues focus on translating these requirements into IT capabilities. Some would argue that this model is not fundamentally broken – and for it to work better only requires business colleagues to learn more about IT, and IT colleagues to learn more about the business. Others – including us – would argue that, as we now operate in a very different context, a different relationship model is required. This change in context is characterised as follows.

Firstly, it’s often not appreciated – particularly by business colleagues – that the IT landscape, built and adapted over many years, can be extremely complex and difficult to change without risk of causing operational problems or even failing completely. Many of the applications are based upon legacy packages that are no longer supported by the original vendor and written in programming languages that are no longer used. Furthermore, how the landscape was originally designed and built was to support business operating models of the past; for example, business functions and products, as opposed to today’s focus on customers and processes. Such complexity creates a context where IT colleagues are cautious of making any changes for fear of the systems going down – as we have seen several times in recent months, particularly with a number of banks.

Secondly, in an attempt to satisfy business colleagues’ ever-increasing demands for rapid solutions to meet market and regulatory changes, and give customers an increasingly digital experience, IT colleagues have resorted to a behaviour that’s best described as being an ‘order-taker’, where business colleagues define requirements – and increasingly solutions – and IT colleagues translate them into IT capabilities. As a result, IT colleagues rarely challenge requirements (or solutions) given by business colleagues – even if they don’t believe they are the best option for the business in the long term – and instead focus their attention on building, testing and deploying the new, or enhanced, applications into an increasingly complex IT landscape. In many cases they have lost the ability (or will) to challenge business colleagues and take the conversation to a level that focuses on business outcomes, rather than short-term solutions based upon what business colleagues think is technically possible.

Thirdly, in some – particularly larger – organisations, business colleagues have been given (or have taken) the decision rights to engage third-party IT vendors to build applications – and the supporting systems – for them. In some cases this also extends to hosting. While these applications may well be in support of the ‘digital strategy’ aimed at creating a compelling digital customer experience, they are often built with little or no regard to their impact on the broader IT landscape. What’s often not appreciated is that this course of action in effect ‘outsources’ IT architecture decision rights to outside vendors who have no understanding of (or interest in) the broader architectural context of the enterprise. Often the irony is that IT colleagues are then expected to take accountability for the resultant applications as they become part of the extended IT landscape.

Fourthly, the increasing focus on delivering short-term business results – on which business colleagues are often incentivised – can result in myopic thinking, which in turn results in digital applications being added to the current IT landscape, thereby adding a further level of complexity. In these situations there is no interest in – or budget for – thinking about the longer term and the increasingly important need to map-out a multi-year programme to re-architect the IT landscape to one that better supports the digital agenda. The reality is that if an organisation is serious about transitioning to a truly digital trajectory, it will need to re-architect its IT landscape at some stage; the only questions are when and how?

Finally, parochial (business) ownership perpetuates fragmentation and duplication. While many business colleagues often bitterly complain about the functionality of ‘their’ IT applications, the cost of ownership and the difficulty of getting its functionality enhanced, they nevertheless become very protective when it comes to the applications being rationalised or ‘their’ IT applications being replaced with an integrated platform that will be shared with others. At one level, this reluctance to change what they know – even with all its deficiencies – is understandable because, as we all know, IT projects have a poor track-record with respect to coming in on time, to budget and to the required quality. Equally, if the strategic intent is for the organisation to become more horizontally-integrated – resulting in a greater degree of common and shared processes, resources, and IT applications – the IT landscape needs to be rationalised with the resulting applications, data and business rules being shared across multiple business units, processes, customer segments and territories. In our experience, one of the main challenges of achieving greater horizontal integration is that senior business colleagues are often reluctant to give up what they believe they own, simply because they believe they will lose control. The result is a proliferation of applications across the enterprise, with little or no synergy or enterprise-wide learning.

The basis of a new relationship model for business and IT

As organisations become more digitally-enabled and the internal IT function is no longer the sole provider of IT solutions, the way business and IT colleagues work together needs to change.

Some organisations are addressing this need by establishing business-IT relationship managers whose role is to be the ‘interface’ between the business and IT; others have created the role of chief digital officer (CDO), and some have devolved their IT function into the businesses they serve. While all these have their own merits, in themselves they are not the complete answer, as what is missing is the means by which business and IT colleagues can better collaborate: how their different perspectives and priorities can be better understood, and how their complementary capabilities can be best applied to turn an idea for a digital customer experience from concept to reality as seamlessly as possible. A process that not only delivers the target customer digital experience, but does so in a way that is cognisant of the resultant downstream cost of ownership and does not compromise – even ideally enhances – the ability of the organisation to incorporate future change.

We believe that this new model should be based upon a shared language, which makes the transition from business idea to IT-enabled reality a seamless process: a language of collaboration that brings their respective world-views together in constructive dialogue. We believe that this common language is the language of digital collaboration.

The language of digital collaboration

The language of digital collaboration enables communication and shared understanding through the articulation of business operating principles, operating model implications and architecture design principles.

Business operating principles
A business operating principle is a ‘conscious choice between two equally valid alternatives’. Or, to put it another way, we choose for the business to operate this way as opposed to that way. Furthermore, these operating principles should not only define the customer digital experience, but also how the organisation intends to operate enterprise-wide.

For example, a business operating principle defining a digital customer experience for a package holiday company could be:

‘Our customers have the opportunity to switch between the internet, tablet, telephone or seek in-store advice at any stage of their booking journey with us’.as opposed to …‘Our customer channels are independent of one another.’

Note that it’s equally important to define the alternative principle, as this explicitly defines how the organisation has chosen not to operate.

Assuming in this example that the organisation had different business units supporting its different brands focusing on different customer segments, a business operating principle defining how the enterprise intends to operate could be:

‘We operate as a horizontally-integrated company, with the highest possible level of common and shared processes, systems and resources – whilst recognising the need for authentic differences across the brands.’as opposed to …‘We operate as a holding company comprising independent, self-contained businesses.’

Further examples are given below.

Examples of business operating principles

‘We are a digital business where customers only interact with us via smart phones and tablets.’as opposed to …
‘Our customers engage with us across different channels’

‘We value customers based upon their lifetime relationship with us.’ as opposed to …‘We value our customers based upon their current transaction.’

‘Our business decisions are driven by a deep understanding of our customers’ behaviour.’as opposed to …‘Our business decisions are based upon market research.’

‘Customer support and back-office functions are provided by shared service centres.’as opposed to …‘Each business unit has its own customer service unit.’

It’s important to note that these business operating principles may initially be in conflict. For example, the digital experience that one unit intends to deliver to its customers may well be in conflict with the enterprise principle of delivering a shared experience across all brands. Our experience is that it’s better to identify these conflicts early on and make them explicit: only then can action be taken to resolve them. If they are not resolved at an early stage, greater conflict will result downstream and a compromise solution will emerge that no one will be happy with.

Operating model implications
The purpose of business operating principles is to define how we intend the business to operate in the future – both in terms of how we engage with customers and how we operate enterprise-wide. If these principles are different from those by which the organisation currently operates, there will be implications in terms of changes needed to the current operating model. One of the best ways of assessing these implications is to identify what capabilities need to be in place that are not currently present. Equally, which current capabilities will need to be strengthened and which will no longer be required. It’s important to note that these capabilities are not solely IT capabilities but organisational capabilities that comprise processes, tools, systems, mental models, standards, individuals’ competencies and, of course, digital technology.

In the package holiday company example above, in order to realise the operating principle ‘Our customers have the opportunity to switch between the internet, tablet, telephone or seek in-store advice at any stage of their booking journey with us’, the following capabilities would need to be in place. The ability:

to uniquely and securely identify a customer.

to identify, record and retrieve a customer journey.

for customers to switch channels at any stage and continue their journey without interruption.

for customer service agents – whether over the telephone or in person in a store – to ‘pick up’ a customer journey and provide advice and support as required.

for customers to ‘restart’ their journey at any point.

By articulating the implications of the target business operating principles as capabilities that need to be put in place enables the feasibility of each operating principle to be quickly assessed. If the implications are significant, in terms of the time and resources required to put the capability in place, then the operating principles may need to be revisited. Equally, if the implications are not significant then they could be equally revisited in terms of delivering a more ambitious digital experience.

Furthermore, defining how the business intends to engage with customers in terms of operating principles – as opposed to detailed customer journeys – enables rapid assessment of the feasibility of what is being proposed. This in turn facilitates closer collaboration and shared thinking through rapid iteration of ideas and possibilities.

Architecture design principles
As with business operating principles, an architecture design principle is a ‘conscious choice between two equally valid alternatives’. Or, to put it another way, we choose to design the organisation’s operating model this way as opposed to that way. Furthermore, these architecture design principles cover all facets of the operating model, thereby forming a specification by which designers – whether in IT or organisational development – can redesign the operating model in a coherent manner.

Returning to the package holiday company example above, the specific architecture design principles would very much depend upon what changes need to be made to the current operating model and IT landscape. As a consequence they are very context-specific. However, by way of example the architecture design principles could include:

‘The complete customer journey is supported by automated business processes that require no manual intervention.’as opposed to …‘The complete customer journey is supported by a combination of automated and manually-executed processes.’

‘Customer data, product rules and business (process) rules are stored once and accessed by multiple applications.’as opposed to …‘Customer data, product rules and business (process) rules are replicated across multiple databases.’

When it comes to defining the IT architecture principles there is an increasingly important set of principles that don’t necessarily emanate from the business operating principles and their implications. These are the principles that enable, as opposed to restrict, future organisational agility. These are important because as the organisation becomes more digital it will want to become even more digital, and it’s therefore important that this trajectory is not impeded by the organisation’s ability to continually change and adapt its IT landscape.

These IT architecture design principles should also reflect what is now technologically possible. In recent years IT architecture design thinking has come a long way, as has the technology that enables this thinking to be realised. For example, using middleware technology and enterprise service bus (ESB) technology along with APIs (application programming interfaces) is increasingly the norm. As a result, there has emerged a set of generic IT architecture design principles to which organisations are increasingly adhering. Examples of these generic IT architecture design principles are given below.

Examples of IT architecture design principles

‘Only use applications that have APIs (Application Program Interfaces) and are compliant with Service Oriented Architecture (SOA) based architecture.’as opposed to …‘Use applications that are closed.’

‘Innovate at the ‘edge’ of the IT landscape rather than the ‘core.’as opposed to …‘Innovate at the core of the IT landscape.’

‘Use (and re-use) application software components that are common and shared.’as opposed to …‘Use uniquely developed software components.’

Final thought

As organisations become more digital – and the technology enabling it becomes more pervasive – the traditional relationship between business and IT colleagues becomes less sustainable. It’s no longer about business colleagues defining requirements, and IT colleagues writing applications and configuring systems; rather it’s a joint, collaborative exercise in design that brings different perspectives and complementary capabilities together in a way that turns an idea for a digital customer experience into reality as seamlessly as possible. This requires different capabilities that are borne from different world-views and built on a language of digital collaboration that enables constructive dialogue. The benefit of this new working relationship is that it is based upon a language of digital collaboration that facilitates iterative, as opposed to sequential, design thinking. Ideas can be explored rapidly, and accepted or rejected quickly. Most importantly it’s an effective means for setting the organisation on a trajectory to a digital future.

]]>The Palgrave Handbook of Managing Continuous Business Transformationhttp://formicio.com/index.php/archives/7217
Fri, 24 Feb 2017 17:35:03 +0000http://formicio.com/?p=7217This handbook provides a comprehensive and unparalleled reference point for studying continuous business transformation. Asserting that change will be the new norm, and highlighting the fact that business transformation can never be complete, this important resource is a tool for …]]>This handbook provides a comprehensive and unparalleled reference point for studying continuous business transformation. Asserting that change will be the new norm, and highlighting the fact that business transformation can never be complete, this important resource is a tool for coping with ongoing change in order to become and stay resilient, the predominant concern of executives across industries. Containing case study material to illustrate issues and solutions, The Palgrave Handbook of Managing Continuous Business Transformation takes an interdisciplinary approach weaving together strategic concepts with real-life experiences, connecting human resource issues with shifts in information technology and linking customers with the businesses from which they buy. Structured into four parts: transformational shifts, achieving customer centricity, dealing with new technology and leading the change, this handbook is crucial reading for academics, scholars and practitioners of business transformation.

About Chapter 25

The Changing Role of Leaders for the Digital Age
Peter Boggis, Frank Dannenhauer, David Trafford
This chapter explores how the role of leaders needs to change, given the profound impact that digital technology has, and is continuing to have, on organisations. It is based on a longitudinal review of the experiences gained by the authors in advising and supporting organisations across a range of industries to become more ‘digital’. It concludes that many organisations have yet to recognise the fundamental shift in the primary role of leaders—together with the process of leadership—that is required if they are to become truly digitally enabled enterprises. It suggests five leadership principles for the digital age.

]]>The Case for Greater Collective Leadershiphttp://formicio.com/index.php/archives/7020
Mon, 03 Oct 2016 14:28:31 +0000http://formicio.com/?p=7020Leadership is important as without it organisations would have no direction and people would have no one to follow. But is all leadership the same, or are different leadership models required in different circumstances? David Trafford and Peter Boggis think …]]>Leadership is important as without it organisations would have no direction and people would have no one to follow. But is all leadership the same, or are different leadership models required in different circumstances? David Trafford and Peter Boggis think so, and argue that collective leadership – as opposed to individual leadership – is critical if an organisation is serious about changing its trajectory and going beyond its default future. Furthermore, they also offer seven operating principles for establishing greater collective leadership.

If operationalising strategy is about changing the trajectory of an organisation, and changing trajectory involves people changing what they do and how they do it, then it’s unreasonable to expect them to commit to these changes unless they are confident they will be successful, and the benefits of the future state are worth the pain of transition. And the principal source of this confidence – or not – comes from an organisation’s leadership.

But if the organisation’s leadership is not aligned, either on the strategic intent or the trajectory by which it will be realised, confidence will not be established. Furthermore, it’s not only what leaders say that instils confidence, it’s what they do and how they behave. If they act collectively as one, use the same language and exercise judgement based upon the same criteria, then it will be evident they are aligned, and thereby exercising collective leadership – as opposed to individual leadership. When operationalising strategy, individual leadership is important, but it is not sufficient; as changing trajectory requires everyone – starting with the leadership group – to pull in the same direction.

We are talking about an organisation’s leaders having collective ownership of, and accountability for, the outcomes and activities that constitute strategy. Our belief is that an organisation is more likely to have a collective strategy – as opposed to multiple, possibly conflicting, strategies – if collective leadership, as opposed to individual leadership, is in place. But what does collective leadership really mean in this context?

Collective leadership is where multiple individuals exercise their leadership roles within a group – and then the entire group provides leadership to the wider organisation. What’s more, it’s a fluid and flexible approach to leadership, where roles and resultant accountabilities, evolve in response to changing circumstances. As a result, the power of collective leadership is greater than the sum of the powers of the individual leaders. Collective leadership is not the same as a ‘high-performance team’, where the focus is on maximising the contribution of each individual team member. Collective leadership is where the given roles and functions are, intentionally, broadly defined and the contribution that individual leaders make evolves over time in pursuit of a common purpose.

A key aspect of collective leadership is collective accountability – where the outcomes of decisions and actions are felt by every leader in equal measure. Individuals who exercise collective leadership tend to have similar values and beliefs, but that’s not to say they need to come from the same social backgrounds, have received the same education or had similar life experiences. While the makeup of the leadership group can be quite diverse, each individual believes in the power of collective thought, action and accountability. Executive groups that exercise collective leadership are neither myopic in their outlook, nor parochial in their perspective; they collaborate extensively whilst giving each other constructive feedback and challenge. They are often described as being ‘aligned’ in their decisions and actions, act as one – as opposed to many – and are ‘joined up’ in their thinking and behaviour.

Furthermore, collective leadership should not be confused with consensus leadership – where group members agree to support a decision in the best interests of the whole, even if it is not the ‘favourite’ of each individual.

In the majority of organisations, strong individual – not collective – leadership is the default model. And in many it is actively encouraged and the resulting behaviours rewarded. There is nothing fundamentally wrong with the individual leadership model if applied in the right context, and we believe that context is when the organisation is trying to maximise its current performance rather than change its trajectory. That’s not to say that collective leadership is not an appropriate organisational leadership model for optimising current performance: it is, but it’s an even more effective leadership model when it comes to changing an organisation’s trajectory.

Our essential argument is that excessive individual leadership can either anchor an organisation to its current trajectory or pull the organisation into multiple, often conflicting, directions. Whereas an organisation that exercises collective leadership is more likely to be successful in pulling itself on to its trajectory of strategic intent.

Operating principles for collective leadership

While there is considerable literature on leadership development, much of it is focused on the development of the individual as a leader. Unfortunately the body of knowledge on developing collective leadership is still a work in progress and is often confused with the development of high-performing teams.

So, how can an organisation change its organisational leadership model to one that gives greater focus on collective, as opposed to, individual leadership? While this is a huge topic that we cannot cover to the depth warranted in this article, we do offer the following operating principles; where an operating principle is a ‘conscious choice between two equally valid alternatives’. Or, to put it another way, we choose to exercise organisational leadership in this way as opposed to that way. The conclusions that we have drawn from observing organisations that excel in collective leadership is that they operate to a set of principles that cover:

Selection.

Collaboration.

Assignment, not position.

Using the strong to strengthen the weak.

Learning from shared experiences.

Aligned rewards.

Improving the collective.

Selection
We all know that it’s difficult, if not impossible, to change peoples’ beliefs so it’s far better to select individuals based upon their beliefs, and give focus to developing their competencies and experience.

Furthermore, as people across the organisation see the type of people who get invited to take up leadership roles, there will follow a process of natural selection, where those aspiring leaders who believe in collective leadership will be motivated and those who do not will seek alternative career paths. The guiding operating principle is to:

‘Select individuals for leadership positions based upon their individual talents and achievements, and their belief in collective action and accountability.’
as opposed to …‘Select individuals for leadership positions based upon their talents and achievements alone.’

Collaboration
We all know that groups of individuals who collaborate are more successful than those that act independently. Collaboration is not in conflict with competition, provided the competition is seen as coming from outside the organisation. Collaboration is not only about sharing, it’s also about constructively challenging and having those difficult conversations with colleagues when in the best interests of the organisation as a whole. Groups that collaborate are more fluid and boundaries are more blurred as individual contributions change as circumstances require.

A significant feeling you get when working with colleagues who collaborate is confidence. Confidence that, if needed, you can ask them for advice and help and, equally importantly, they are also looking out for you. A feeling that is reciprocated across the group. The guiding operating principle is to:

‘Collaborate with colleagues,’
as opposed to …‘Acting alone.’

Assignment, not position
During his time as CEO at GE, Jack Welch repeatedly reminded his top 750 executives that they were not owned by the business where they worked but by him, and that they were just ‘on loan’. This was part of Welch’s strategy of creating the boundary-less enterprise, which enabled the free flow of ideas, capital and talent. By placing leaders on assignment, he removed the permanency of the position and encouraged a more collegiate and collaborative style of leadership. The guiding operating principle here is to:

‘Place leaders on assignment,’
as opposed to …‘Place them in permanent positions.’

Using the strong to strengthen the weak
A respected past colleague used to remind us that “a team can only go as fast as its slowest necessary member”. Therefore, if the group wants to go faster, the performance of the slowest necessary member needs to be improved – or they need to be replaced! But how can improvement best be achieved (we’ll come to replacement later)? Again, in the eyes of Jack Welch, you get the highest-performing members of the group to mentor the weakest members, and furthermore align the bonus of the mentor to the performance improvement of the mentee. Or, to put it another way, get the more able and experienced to accelerate the development of the less able and inexperienced.

The beauty of this simple technique is that it builds the capability of the whole not just the individual perceived to be in need of greatest development. It does this simply because it’s impossible to mentor someone without learning from the mentoring process. Whether this learning is about a different part of the organisation or the process of mentoring itself, both individuals can benefit from the experience. It’s also a way to de-risk bringing less experienced individuals – who by selection are seen to have high potential – into leadership positions. The guiding operating principle here is:

‘For the more experienced to be encouraged (and incentivised) to ‘pull’ the less experienced to their full potential,’
as opposed to …‘Let the less experienced ‘sink or swim’ on their own.’

Learning from shared experiences
We know that intelligent, successful people rarely learn from what they are told; they learn from their experiences, particularly when they are taken out of their comfort zone and stretched both intellectually and emotionally. This is known as experiential learning. Individual experiential learning is important, but collective experiential learning of a leadership group is a powerful way of establishing shared insight, understanding and commitment. Furthermore, the collective experiences go further than learning about the subject in hand as they develop shared understanding and appreciation of one another at the human level.

The power of collective experiential learning is that it creates a context within which the learning can be applied. As Steve Kerr, the past Chief Learning Officer at GE’s Crotonville leadership institute, repeatedly said: “Never put a changed person back into an unchanged organisation; the investment will be wasted”.

The guiding principle here is to:

‘Learn through collective experiences,’
as opposed to …‘Learn through individual, classroom-based teaching.’

Aligned rewards
The old adage “people do what is inspected, not what is expected” is as true today as it has always been. It was well illustrated in Steve Kerr’s seminal paper On the folly of rewarding A, while hoping for B, in which he argues that all organisms – whether they are monkeys, rats or human beings – seek information concerning what activities are rewarded, and then seek to do (or at least pretend to do) these things, often to the virtual exclusion of activities not rewarded. The extent to which this occurs depends upon the attractiveness of the rewards offered. In his article, he gives a number of examples from politics, medicine, sport, education, consulting and business of reward systems that are, in his words, “fouled up” as the types of behaviour rewarded are those that the rewarder is trying to discourage, while the behaviour desired is not being rewarded at all.

In one example, Kerr cites the expectation that university professors will not neglect their teaching responsibilities, yet they are rewarded almost entirely for their research and publications. While the mantra “good research and good teaching go together” is often quoted, the reality is that professors often find that they must choose between teaching and research-orientated activities when allocating their time. He also gives examples of the most common management-reward follies, including hoping for total quality, but rewarding for shipping on schedule, even with defects.

While it’s important to hold individuals accountable and reward them accordingly, it’s more important to understand what to hold them accountable for and then reward them accordingly. If it’s the achievement of a collective outcome, then ‘the reward’ should be aligned to this outcome – while recognising each individual’s contribution. We’re not suggesting that alignment of reward is the same as everyone receiving the same compensation, but if collective action and accountability (collective leadership) is the goal, then personal reward needs to be aligned to the collective achievement. The guiding principle here is to:

Improving the collective
Collective leadership only works if everyone in the group feels that each individual is both committed and ‘pulling their weight’. If this is not the case – either through commitment or ability – then the membership of the group needs to change. If it is felt that an individual’s performance and contribution cannot be improved, then they need to be invited to leave the group and pursue an alternative career path. Being a member of a group that exercises collective leadership is by no means an easy option. In many respects, there are less places to hide than in organisations that advocate individual leadership. Continual improvement of the collective leadership qualities of the group is paramount, and one way of achieving this is through the objective selection, retention and de-selection of its members. As Jack Welch is quoted as saying “My main job was developing talent. I was a gardener providing water and other nourishment to our top 750 people. Of course, I had to pull out some weeds, too”. The guiding principle here is to:

‘Improve collective performance of the leadership group,’
as opposed to …‘Improve the performance of individual leaders.’

Operating principles for Collective Leadership

Select individuals for leadership positions based upon their individual talents and achievements, and their belief in collective action and accountability.

Collaborate with colleagues.

Place leaders on assignment.

For the more experienced to be encouraged (and incentivised) to ‘pull’ the less experienced to their full potential.

Learn through collective experiences.

Base individual reward on collective achievement.

Improve collective performance of the leadership group.

Final thought

The extent to which an organisation exercises collective leadership is a choice, and collective leadership is a capability that can be developed and guided by a set of operating principles, seven of which we have described above.

Finally, why is collective leadership important? Because without collective leadership there will be no collective strategy, and without a collective strategy an organisation will pull itself in multiple directions – and in doing so have very little chance of successfully changing its trajectory and going beyond its default future.

]]>What Can Leaders of Change Learn from World-Class Performers?http://formicio.com/index.php/archives/6972
Mon, 13 Jun 2016 16:00:26 +0000http://formicio.com/?p=6972It’s often quoted that some 70% of major change initiatives fail to deliver their intended objectives. If this is true, and the risk of failure so high, what can be done to increase the chances of success? In this article …]]>It’s often quoted that some 70% of major change initiatives fail to deliver their intended objectives. If this is true, and the risk of failure so high, what can be done to increase the chances of success? In this article David Trafford and Peter Boggis suggest that much can be learned from world-class performers – particularly from ballet where the dancers continually work at the very threshold of failure. But first they examine the evidence for the poor rate of change success.

Nearly 10 years ago – in May 2007 – The Concours Group, of which we were both then a part, held a Summit for senior executives on the challenges they faced when trying to bring about change. The Summit was called The Chances Are You’ll Fail and was held at The Royal Opera House in central London. We gave it this title because at the time the generally-held belief was that some 70% of major change initiatives failed to achieve their objectives – even when ‘best practice’ was followed. The Summit comprised a series of sessions with thought-leaders who explored why the success rate had remained so low for so long, and what could be done about it. It also included a unique and privileged opportunity to enter a Royal Ballet studio and observe world-class star performers in very close proximity working at the very threshold of failure. Not only did Summit participants have the opportunity to observe such an intensive Masterclass, they also had the opportunity to ask questions of the dancers and their teachers. Why did the Concours Group do this? Simply to draw the parallel between what world-class performers need to do in order to reduce the risk of failure and what organisations need to do in order to reduce the risk of their change initiatives failing.

We’ll come to what these two very different groups of professionals have in common later in the article. Firstly, we’ll look at whether the success rate for change initiatives has improved over the past 10 years. We researched this for our forthcoming book Beyond Default as we wanted to get as objective an assessment as possible on how good organisations are at developing and executing strategy – of which implementing change is the final step. We did this by looking at the evidence from a number of perspectives; which included the churn of companies in the Fortune 500 and FTSE 100 listed companies, the success rate of mergers and acquisitions, the success rate of major transformation initiatives and the length of tenure of CEOs. A summary of what we found follows.

Churn of the Fortune 500 and FTSE 100 listed companies

It’s a reasonable assumption that organisations want to be successful, both in the shorter and longer term. And being successful involves change, whether in response to changing markets, customers, economies or technology. It also seems reasonable to assume that organisations that sustain their success must be good at change. But how can this be measured? One way is to track the perceived worth of a company, in terms of its stock market value, over time. Another is to track, over time, the churn of companies in lists like the Fortune 500 and FTSE 100.

When Mark J Perry of the American Enterprise Institute looked at this in 2014 he found that 88% of the Fortune 500 companies in 1955 (which was when the list was first compiled) no longer existed in 2014. Furthermore, there were only 61 companies that appeared on both lists, meaning that only 12% of the Fortune 500 companies in 1955 were still on the list 59 years later in 2014. To put this another way, almost 88% of the companies making the Fortune 500 list in 1955 have gone bankrupt, been acquired, merged, or still exist but have fallen from the Fortune 500.

The Changing Fortune 500

Companies that were in the Fortune 500 in 1955, but not in 2014, included American Motors, Brown Shoe, Studebaker, Collins Radio, Detroit Steel, Zenith Electronics, and National Sugar Refining.

Companies that were in the Fortune 500 in both 1955 and 2014 included Boeing, Campbell Soup, General Motors, Kellogg, Procter and Gamble, Deere, IBM and Whirlpool.

Companies that were in the Fortune 500 in 2014, but not in 1955, included Facebook, eBay, Home Depot, Microsoft, Office Depot and Target.

Another analysis by the Ewing Marion Kauffman Foundation showed that the annual churn of companies leaving the list has risen over time, from an average of 25 in the 1950s to nearly 40 now. The analysis also showed that the number of companies staying in the list after a period of time reduced more quickly depending upon the decade in which they entered the list. For example, the list of companies that entered in 1955 declined far more slowly than those that entered the list in 1975.

Furthermore, it took 20 years to replace one third of the Fortune 500 companies listed in 1960, against four years for those listed in 1998. And the life expectancy of a firm in the Fortune 500 was around 75 years some 50 years ago; today it’s less than 15 years and declining all the time.

When looking at the UK, the FTSE 100 was created in 1984, superseding the FTSE 30 that had been around since 1935. Where the FTSE 30 comprised companies from only the industrial and commercial sectors, the FTSE 100 covers all sectors. An analysis in 2014 by Greg Mohan of investment firm Rathbones showed that of the original FTSE 100 listed companies, only 30 were still present in the index and only 19 had been ever-present over the 30 years, including BP and Marks & Spencer. More starkly, he found that only four of the FTSE 30’s original constituents were in the FTSE 100 in 2014, these being GKN, Tate & Lyle, Imperial Tobacco and Rolls-Royce. The early years of the FTSE 100 saw many new names as privatisation brought many new companies to market, including British Telecom in 1984, British Gas in 1986, British Airways in 1987, the water companies in 1989 and the electricity companies in 1990-91.

Analysis of the Fortune 500 and FTSE 100 is not without its caveats; for example, service companies were not included in the Fortune 500 until 1984; the surge of UK Government privatisation in the 1980s; the fact that there are repeat entries and exits of many companies; the concentration of churn is towards the bottom of the list. It does nevertheless provide evidence that a sizeable proportion of large companies are not able to maintain their perceived value.

There are many reasons why a company might fall out of the Fortune 500 or FTSE 100, but our assumption is that they did not do this out of choice. Even those that were acquired would probably have preferred to have stayed independent. Our point is that if your measure of success is to become and remain a Fortune 500 or FTSE 100 company, the chances are that over time you are more likely to fail than succeed.

Success rate of mergers and acquisitions

Another form of change is that resulting from a merger or acquisition. However, there’s a generally-held belief that most mergers and acquisitions are not successful as they actually destroy, rather than create, value. This view is supported by Clayton M Christensen, Richard Alton, Curtis Rising and Andrew Waldeck in their HBR article The New M&A Playbook, where they claim that somewhere between 70% and 90% of M&A deals actually destroy value. A survey of almost 90 M&A professionals conducted by McKinsey & Company in 2009, showed that even with the new approaches to M&A integration that have emerged over the past 10-20 years, the failure rate is still 66% to 75%.

Some of the most cited examples of M&As that destroyed value include the $164 billion deal in 2000 between AOL and Time Warner. In less than two years, the deal started to unravel when the merged group reported a loss of $99 billion and a $45 billion write-down. The total value of the stock subsequently went from $226 billion to about $20 billion. Another example is Hewlett Packard’s (HP) acquisition of 87.3% of the shares of UK-based software company Autonomy in October 2011 for $10.3bn. Within a year, HP had written off $8.8bn of Autonomy’s value.

An industry that has seen a spate of poorly-judged acquisitions in recent years in that of mining. In 2007, Rio Tinto acquired Alcan – a Canadian aluminium processing and products company – for $38 billion, only to write off some $8bn of value soon after. Rio Tinto also acquired Riversdale Mining in 2010 for $3.6 billion and subsequently wrote $3 billion off the value of Riversdale’s crown jewel, a coal project in Mozambique. And Rio Tinto is not alone; in 2008 Anglo American spent $4.7 billion for rights to the Minas Rio iron ore deposit deep in the Brazilian jungle, overestimated its potential and under-estimated its costs to develop. In 2013, the company said it would take a further $8 billion to develop.

According to Professor Michael Porter, one of the best ways of measuring M&A success is to look at the percentage of organisations that subsequently divorce in a period of five or more years after the deal was done. In the sample, the percentage of organisations that subsequently divorced was above 50%; the conclusion being that an organisation would only resell a company it had acquired if it failed to realise the expected benefits. This was certainly the case with Daimler eight years after it acquired Chrysler for $36 billion in 1989. While the stock price rose immediately after the merger was announced, some two years later the stock value had declined by 50%. In 2007, the two organisations divorced. But not all divorces are as a result of failure to deliver the synergy benefits. In 2002 eBay acquired PayPal for $1.2 billion, which it then spun off as a separate company in 2015 for $49 billion. However, in 2005 it did acquire Skype for $2.6 billion and sold it four years later for just $1.9 billion.

In some cases organisations get so large and complex as a result of multiple acquisitions that their only option is to ‘pull themselves apart’ again. The most obvious example being Hewlett Packard, which grew rapidly both organically and through acquisitions. Since 1958 it had made well over 100 major acquisitions, the most notable being Compaq in 2002, Snapfish photo sharing in 2005, Electronic Data Systems (EDS) in 2009, Palm hand-held organisers in 2010, and Autonomy in 2011. However in 2015 it decided that its future would be better if it split into two separate companies, HP Inc. focusing on printers and computers, and HP Enterprise focusing on information-technology services.

Success rate of major transformation initiatives

As with mergers and acquisitions, the generally-held belief is that organisations are not good at delivering major transformational change. As previously mentioned, a failure rate of 70% is often quoted. But we found the picture to be more complex as the success (or failure) rate is dependent upon a number of factors, including whether the change is incremental or transformational; the industry sector in which it is undertaken; whether the change is within a commercial enterprise, not-for-profit organisation or government agency; and the extent to which the change is dependent upon IT. While it’s not always possible to identify these distinctions in available research, the evidence overall indicates that the success rate is poor and by all accounts has not noticeably improved since John P Kotter wrote his seminal HBR article Leading Change: Why Transformation Efforts Fail in 1995.

In 2014 the Association for Project Management (APM) surveyed 862 project professionals across a range of industries. While the aim of the study was to identify the factors that determine project success, they also captured participants’ views on the success of their projects. The study found that across a number of criteria 22% to 31% of the projects were considered wholly successful, 29% to 50% very successful, and 6% to 17% unsuccessful. This suggests a better success rate than the 30% often quoted. Whether the figures were influenced by them being provided by project professionals, as opposed to key stakeholders of the projects, is open to question.

State of the UK Government’s Project Portfolio

The UK National Audit Office briefing in January 2016 to the Select Committee for Public Accounts reported that as at June 2015 the whole-life cost of the 149 major projects in the UK Government project portfolio was £511 billion. Of these 34% were considered by the Major Projects Authority to be in doubt of successful delivery or unachievable unless action was taken.

Furthermore, the number of projects in the portfolio rated as red or amber-red had increased since 2012. Of 56 projects that remained on the Portfolio from 2012 to 2015, 17 had red or amber-red ratings in June 2015 compared with 12 in 2012, although the number of projects considered highly likely to deliver on time and on budget (rated green or amber-green) also increased from 16 in 2012 to 25 in 2015.

Of particular concern was the fact that 35% of projects due to deliver in the next five years are rated as red or amber.

The IBM Global Making Change Work Study in 2008 concluded that most projects fall short of their objectives. The study involved some 1,500 project leaders from 15 nations, across 21 industries, who expressed the view that project success was hard to come by. While the results showed that 41% of their projects were considered successful in meeting project objectives within planned time, budget and quality constraints, nearly 60% failed to fully meet their objectives and 44% missed at least one – time, budget or quality – goal. Furthermore, a full 15% either missed all goals or were stopped by management.

When it comes to change today, it’s inevitable that IT is involved in some way. Whether it’s reconfiguring systems following a reorganisation, re-platforming the IT landscape to replace legacy technology, or creating a mobile user experience using the latest digital technology, IT has an increasingly critical role to play. But IT projects are notoriously difficult to bring in on time and to budget, as was illustrated in a 2012 joint research project between McKinsey & Company and the BT Centre for Major Programme Management at the University of Oxford. The research looked at 5,400 large IT projects with budgets exceeding $15 million and found that 45% went over budget and 7% over time, while delivering 56% less value than predicted. In fact, they found that after comparing budgets, schedules, and predicted performance benefits with the actual costs and results, the projects had a combined cost overrun of $66 billion – more than the GDP of Luxembourg.

These findings are supported by The Standish Group, which since 1994 has published an annual survey on the state of the software development industry. The 2015 report covered some 50,000 projects from around the world, ranging from tiny enhancements to massive new system implementations. It’s interesting to note that from 2011 to 2015 the percentage of projects deemed successful remained steady at 29%, the number rated as ‘challenged’ slightly increased from 49% to 52% and those that failed dropped slightly from 22% to 19%. Or to put it another way, based upon this research the likelihood is that 1 in 5 of your software development projects will fail.

Changing tenure of CEOs

If the Board and Shareholders were happy with their CEO’s continued performance – and by definition their ability to deliver change in all its forms – it seems reasonable to assume that they would do everything they could to keep him, or her. Equally, if they were not happy then their only option is to find a new leader who would give them that confidence.

An analysis by The Conference Board of departing CEOs from the S&P 500 listed companies showed that CEO tenure had declined from 9.9 years in 2000 to 8.1 years in 2012. In 2013 the tenure was longer at 9.7 years, but this was considered to be an outlier due to retirements being delayed for economic reasons during the global market turmoil. The other outliers were 2004 when it was 9.3 years and 2009 at 7.2 years. While this data may not be conclusive, it does suggest a downward trend, probably driven by the increasing pressure on CEOs to navigate their organisations through the increasingly competitive global market place.

Another source of insight on CEO tenure is the Strategy& 2015 CEO Success study, which tracked the turnover of CEOs from the world’s 2,500 largest companies. The study, covering the years 2000 to 2015, showed that globally across all industry sectors the percentage turnover rose from 12.9% in 2000 to 16.6% in 2015, the lowest being 9.8% in 2003. Interestingly across the US/Canada, Western Europe and other mature regions, the turnover increased to 7.3%, 7.7% and 7.9% respectively. However in the BRIC region it rose from 4.0% to 19.1%, and for other emerging regions from 1.8% to 16.7% – an increase of 15.1% and 14.9% respectively. Across all regions, the sector that saw the biggest increase was Telecoms that rose from 10.0% to 24.7%. Somewhat surprisingly, the turnover in the IT sector dropped 3.4%, from 13.9% to 10.5%. The study also found that in recent years, companies are making a deliberate choice to bring in an outsider to be their new CEO, presumably in an attempt to introduce fresh thinking. In the four-year period from 2012 to 2015 organisations chose outsiders in 22% of planned replacements, up from 14% in the period 2004 to 2007, an increase of nearly 50%. Furthermore, the study found that an outsider CEO was more likely – 30% compared with 22% – if the company was low performing, and for three years running (2012-15) outsider CEOs delivered higher median total shareholder returns than insiders.

What we can’t see from this data is the correlation between the movement of CEOs, and their perceived failure to stay in the Fortune 500 or FTSE 100; not achieving the synergy benefits of a merger or acquisition; or not delivering the intended outcomes of a transformation programme. However, it seems reasonable to assume that the greater the failure rate of these objectives, the greater the churn of C-Suite executives.

The parallels between leaders of change and ballet dancers

So, what can leaders of change learn from world-class performers, particularly ballet dancers? Essentially how they reduce the risk of failure. We see there are six strong lessons that can be applied.

Talent – In order to be a world-class ballet dancer you have to have talent. In order to lead complex change initiatives you also have to have talent, albeit of a very different kind. While talent can be developed, the reality is that some people have a natural ability to envision, shape and deliver change, and others don’t. Assigning someone who does not have proven talent in leading change to a major change programme only increases the chances of personal and organisational failure.

Vision of success – All world-class performers, whether they are ballet dancers, athletes or F1 racing drivers, spend a lot of time envisioning success. They continually mentally model what they need to do to achieve the outcomes they set themselves. Leaders of change initiatives need to do the same, not only in terms of the target outcomes but the steps that need to be taken to get there.

Practise – The highly-successful golfer Arnold Palmer once famously said “It’s a funny thing, the more I practise the luckier I get”. World-class performers practise a lot. They discover what works and in the process learn where they need to improve. Leaders of change practise through application, starting with less complex change initiatives and building up to the larger, more complex ones as their experience and confidence build. Unfortunately, all too often, people are asked to lead major change programmes when they have not in the past had the opportunity to practise on less complex initiatives.

Critique – What we noticed during the Ballet Masterclass was the crucial role that the dance teacher played, not only in deciding what their student did but the constructive – and sometimes brutal – feedback they provided. We know that we are blind to many of our faults and we all have a tendency to overemphasise our abilities. Leaders of change are no different and would benefit from constructive critique.

Direction – A world-class performer may have a vision of what they are aiming to achieve, but they do this within the context of an overall performance; a performance that has direction. In change management the ‘director’ is often called the ‘executive sponsor’, whose role is to provide overall direction, keep focus on the target outcomes, maintain the overall integrity of the change initiative, and ensure that the conditions for success are in place.

Tenacity – World-class performers never give up. They expect things to get tough and accept that things will not always go according to plan. Over the years they build up both the physical and mental capacity to deal with setbacks. Leaders of change need these same qualities.

Final thought

The evidence we found certainly supports the generally-held view that delivering change has a significant risk of failure. Furthermore, there is no evidence to suggest that the success rate is noticeably improving. Obviously there are some examples of organisations that get it right, and there are individuals who are world-class performers when it comes to managing change – but these are few and far-between. All too often they are undervalued when compared with their peers in more traditional executive roles. This will only improve when individually and collectively the capability of change management is practised, developed and perfected – like all other world-class performers do.

]]>The Purpose of Strategy: To Change an Organisation’s Trajectoryhttp://formicio.com/index.php/archives/6914
Mon, 14 Mar 2016 12:21:27 +0000http://formicio.com/?p=6914If the purpose of strategy is to change an organisation’s trajectory, from one that is taking it to its default future to one that is not only better but achievable, how are the strategic choices best made and how can …]]>If the purpose of strategy is to change an organisation’s trajectory, from one that is taking it to its default future to one that is not only better but achievable, how are the strategic choices best made and how can the chosen strategy best be implemented? In this article, David Trafford and Peter Boggis present a framework for developing strategy that comprises three strategic trajectories: reality, intent and opportunity. They argue that only by understanding the trajectory of strategic opportunity and the trajectory of strategic reality can informed choices be made on the trajectory of strategic intent.

The term strategy is often misused and definitely overused. In his best-selling book, Good Strategy/Bad Strategy, Richard Rumelt argues that the gap between good strategy and the jumble of things people label as ‘strategy’ has grown over recent years and that strategy is not the same as ambition, leadership, vision, planning or understanding the logic of competition. Freek Vermeulen of the London Business School argues in his article So, you think you have a strategy? that at least nine out of ten organisations don’t actually have a genuine strategy. His conclusion is based upon viewing many strategy presentations that lack the basic necessities of cogent and executable strategy, namely that they are not really making choices; are stuck in the status quo; have no relationship to value creation; and are mistaking objectives for strategy.

But the reality is that all organisations do have a strategy: it may not have been intentionally and explicitly defined, but the daily decisions and actions that its leaders take are a reflection of that strategy.

Most corporate strategies reflect a set of explicit or implicit choices aimed at creating greater shareholder value, increasing market share or, in extreme cases, survival. These choices typically cover market and customer propositions; product and service offerings; organisation and structure; mergers and divestments; and organisational values and beliefs. While all these ‘strategic choices’ are valid and often necessary they, in our view, miss the fundamental purpose of strategy: which is to define the actions needed to change an organisation’s trajectory. By this we mean changing the trajectory that is currently taking the organisation to its default future – which is the place it will end up if no action is taken other than that currently planned – to a future that is not only better, but achievable. If the strategy relates to a part of the organisation, like HR, manufacturing, distribution or IT, the domains of the strategic choices may be different but the purpose is the same: to change the trajectory of the respective part of the organisation. It is also worth remembering that choices are only strategic if, once acted upon are difficult, if not impossible, to reverse or undo. All other choices are essentially planning decisions that can be changed – albeit at a cost.

There is nothing new in this thinking as it has always been the role and accountability of leaders to steer their organisations to a better future. The challenge today is doing this in a world where the strategic opportunities are changing at a pace that is often faster than our ability to translate them into action. In our view, the challenge is twofold: firstly, translating what is strategically possible into an explicit strategy, and secondly developing the capability to successfully operationalise the chosen strategy.

With the aid of a conceptual framework we will explore these two aspects of developing and operationalising strategy. Our conceptual framework, illustrated in the diagram on the right, comprises the following three trajectories.

Trajectory of strategic opportunity – the trajectory your organisation could pursue if it faced no constraints.

Trajectory of strategic reality – the trajectory your organisation is currently taking.

Trajectory of strategic intent – the trajectory your organisation has chosen to take based upon an understanding of the trajectory of strategic reality and trajectory of strategic possibility.

It is important to note that the ‘capability’ of each of the three trajectories is increasing over time. This reflects the continuing growth of strategic opportunities, advances in strategic thinking and our increased ability to successfully operationalise strategy.

We believe the purpose of strategy is to close the gap between an organisation’s current reality and what is strategically possible. Unfortunately, for many organisations this gap is widening. Let us explore the three trajectories in more detail.

Trajectory of strategic opportunity

The trajectory of strategic opportunity is actually not one trajectory, but an ‘envelope’ of trajectories that represents the direction your organisation could take if it faced no constraints. It is important to remember that the trajectory of strategic opportunity is decided for you, not by you. It is a result of a combination of external factors including the global economy, regulation, regional conflicts, demography, oil and other commodity prices, advances in technology (particularly digital technology) and climate change. The challenge for many organisations is that their trajectory of strategic opportunity is changing at such a pace that it is difficult to track or predict. Long gone are the days when tomorrow’s strategy was an extrapolation of the past. Today the scope of strategic opportunity is creating discontinuities, and so-called disruptor organisations that are redefining business models and industries alike.

Trajectory of strategic reality

We call an organisation’s current trajectory its trajectory of strategic reality. We call it this because that is what it is: the reality of the current strategy that is taking an organisation to its default future, which is the place it will end up if no action is taken other than that currently planned. If the purpose of strategy is to change the current trajectory, then it must not only be based upon what is strategically possible, but also on what can be successfully operationalised. By ‘operationalised’ we mean the process by which the choices defined in the chosen strategy become so embedded within the organisation that they become the norm – and the trajectory of strategic reality and trajectory of strategic intent coincide.

But an organisation’s current trajectory is what it is for a reason. Understanding the factors that are determining the current trajectory are therefore critical if the correct choices are to be made as to what actions are needed to bring the current trajectory in line with that of strategic intent. While there can be many factors the most common include:

Complexity – Organisations are becoming increasingly complex – particularly those comprising multiple divisions operating across multiple territories. This is equally the case for governments that comprise multiple agencies led by different ministers. Complexity is a result of the number of components in a system and their degree of interaction. The greater the number of divisions, business units, departments, distribution channels, territories, customer segments, regulators, supplies and partners, the greater the organisational complexity. The results of organisational complexity can manifest themselves in many ways, the most common being slow and inconsistent decision-making, myopic planning, lack of ‘joined-up thinking’, silo management and dysfunctional executive behaviour. People across the organisation can feel frustrated, disillusioned and unable to contribute to their full potential. It is not unusual in these situations to see staff – including senior executives – ‘hunker down’ and pursue their own agenda.

Lean – Removal of waste is obviously a good thing, but many organisations have taken this to a level where there is no contingency should anything unplanned arise, nor do they have the capacity to experiment. If an organisation is serious about changing its trajectory, then it needs the headspace to think about what is possible and the capacity to carry it through. Relying on outside consultants to develop a strategy may be attractive from a resourcing perspective, but it does not necessarily develop the level of understanding needed to operationalise the chosen strategy. The application of Lean principles can of course reduce organisational complexity.

Organisational Capabilities – Organisations tend to operate and behave in a particular way without necessarily knowing how or why. This is a result of the organisational capabilities they have developed over time. Organisational capabilities are like muscles, the more they are used the stronger they become, and the stronger they become, the more they shape organisational culture and establish organisational habits. Organisational capabilities are formed from a combination of shared mental models and frameworks; established processes and practices; common language, mindsets and beliefs; and shared experiences. Significantly, as they become embedded within an organisation they are not lost when key individuals leave. While competencies are held by individuals, capabilities are held within organisations. In many respects organisational capabilities act like invisible tramlines keeping the organisation on its current trajectory. Changing organisational trajectories therefore requires some organisational capabilities to be introduced, others strengthened and some weakened.

Trajectory of strategic intent

The trajectory of strategic intent is the organisation’s chosen strategy. It is the trajectory the organisation has chosen to pursue having taken into consideration what is possible within the trajectory of strategic opportunity and what is realistic in terms of changing the trajectory of strategic reality.

A strategy that ignores what is strategically possible ignores the potential of future value. A strategy that ignores current reality has the potential of not being successfully operationalised, and thereby delivering no value.

Closing the strategy gap

The purpose of strategy is to close the gap by bring the trajectory of strategic reality closer to the trajectory of strategic opportunity. The closer the trajectory of strategic intent is to the trajectory of strategic opportunity, the greater the risk that it will not be successfully implemented – simply because the required change in the trajectory of strategic reality may be too great. Equally, the closer the trajectory of strategic intent is to the trajectory of strategic reality, the greater the risk that the default future will not be changed – simply because the current trajectory will not have changed sufficiently.

There are in effect two gaps to close, not one. The first gap – between the trajectory of strategic opportunity and trajectory of strategic intent – is closed by developing the ability to develop strategies that reflect what is strategically possible and strategically realisable. The second gap – between the trajectory of strategic intent and trajectory of strategic reality – is closed by developing the ability to operationalise strategies. Both of these are organisational capabilities that can be developed.

Below we offer a five-step approach to closing the two strategy gaps and developing the organisational capabilities needed to do so. The approach is more a framework than a detailed methodology as our aim is to create a deeper understanding of the logical steps that need to be taken and the informed choices that need to be made at each stage.

Understand your trajectory of strategic opportunity
Your trajectory of strategic opportunity is a reflection of what your organisation could do if there were no constraints. It is not a projection into the future – based upon an extrapolation of the past – but a perspective on how the forces shaping your industry are defining a possible future. It is about understanding where the likely discontinuities on this trajectory will come from and the disruptor organisations that are likely to redefine your industry.

This is not something that can be easily done from within the organisation. In our view experiential learning journeys are excellent vehicles for understanding how strategic opportunities are developing, particularly when undertaken by a leadership group. Through shared experiences and reflective discussion, participants begin to see the world differently, their perspectives change, new insights are developed and greater shared understanding gained.

Define your strategic axes
When leaders think about strategy they think about how their organisation could operate in the future. They are thinking about how the current sources of value could be maximised and where new ones could be created. We call these sources of value the strategic axes of the organisation. Strategic axes not only define what an organisation does, but also the extent to which it does it.

For example, all retail banks have a set of strategic axes, one being payments that enable customers to pay bills and transfer money. This strategic axis offers a spectrum of choice and where a bank chooses to position itself on this spectrum defines its strategic intent – something we will discuss further in step 4. Other strategic axes in retail banking could include: savings, insurance, investments, mortgages and commercial loans.

Some strategic axes are well established in an industry, like in the retail banking example above, while others will be created as new sources of value are pursued. For example, when Apple launched iTunes in 1998 it pursued a new source of value, and as a result introduced a new strategic axis to the Apple organisation. Equally, when Amazon was launched in 1994 it operated on one strategic axis, ie e-retailing, initially focusing on books. Over the years it has introduced new strategic axes, including Amazon Web Services in 2002, the e-reader (Kindle) in 2007 and video on-demand (initially called Amazon Unbox and latterly Amazon Prime) in 2006.

Assess your trajectory of strategic reality
As discussed above, there are many reasons why an organisation is following a given trajectory. Some, like global economic trends, regulation and market demographics, are external factors that are largely outside management’s control. The majority however are internal and therefore are – in theory – within their control.

These internal factors include technology (specifically legacy technology), organisational structure, processes, skills, mindset (based upon assumptions, beliefs and norms), leadership and past winning strategies. In effect these factors are a reflection of the organisational capabilities that have built up over time.

Examples of organisational capabilities that exist in many organisations include the ability to manage cost; develop new products; deliver customer service; manage processes; innovate; integrate acquisitions; manage vendors; be health and safety compliant; deliver IT services; and develop talent. It is important to remember that the dominant organisational capabilities that exist in your organisation today were developed for a reason: to establish and maintain the trajectory of your then strategy. When it comes to changing your current trajectory it is highly likely that some of your current organisational capabilities will anchor your organisation to its current trajectory, ie your trajectory of strategic reality.

Define your target strategic signature
Your chosen set of strategic axes, together with where you choose to position yourself along each of the strategic axes, defines your target strategic signature, and thereby your trajectory of strategic intent. (Incidentally, where you operate today on each strategic axis is your current strategic signature.) Returning to the retail banking example illustrated in the sidebar example, a strategic choice for payments could be to provide a full range of payment facilities available through the branch network, telephone, internet and mobile devices. At the other extreme the choice could be to offer a more limited set of payment services, for example only via the Internet. Most retail banks operate on the same strategic axes, but choose different positions along each spectrum of (strategic) choice. Equally, if a bank provided mortgages the spectrum could range from basic repayment mortgages through to offset mortgages linked to current accounts.

In the Apple example previously discussed, the Apple leadership may not have completely understood the full spectrum of choices available to it along its original iTunes strategic axis, but over time it has continually extended the range of this strategic axis and repositioned itself accordingly. Over time it has moved from providing a simple music player to the sophisticated multimedia content manager, hardware synchronisation manager and e-commerce platform of today.

Returning to the purpose of step 1 (understand your trajectory of strategic opportunity), it is not only to identify potentially new strategic axes, but to understand how existing ones could be extended in terms of their potential for greater value creation. Its purpose is also to identify those strategic axes that are coming to the end of their time and from which the organisation needs to exit.

Defining your target strategic signature is a way of defining your trajectory of strategic intent.

Define the actions needed to realise your trajectory of strategic intent
Once the trajectory of strategic intent is defined, the focus usually turns to implementation, which usually involves identifying the actions and plans needed to push the present into the future. The ‘push’ approach is predicated on the assumption that successful implementation is achieved through the execution of a series of steps – essentially, implementation of a pre-defined plan, where the completion of each step takes the organisation closer to its target state.

The main weakness of the push approach is that it assumes organisations are deterministic and ‘programmable’. Yet we all know that organisations are not predictable, particularly at times of significant change; they are dynamic systems that respond – often in unforeseen ways – when attempts are made to change them. As a consequence, an implementation plan is always out of date. Furthermore, having such a plan can lead people to believe it is someone else’s responsibility to action it: namely the people implementing the plan.

An alternative approach – and one we strongly advocate – is to pull the present into the future. The ‘pull’ approach takes a different perspective and aims to create a context where people can exercise their judgement, apply their experience and use their expertise to pull the organisation from the present into its target future.

The challenge with the pull approach is that the conditions for change need to be embedded within the organisation in ways that lead to intellectual, emotional and physical engagement. And this can only be achieved if the right context is created – a context where everyone in the organisation can constructively contribute to pulling the present into the future.

So, when is it more appropriate to adopt the pull as opposed to push approach?

If the required shift in trajectory is not significant and the target future is ‘better business as usual’, then the push approach is probably best. In this situation the outcomes are more predictable and therefore plans can be developed and executed.

If however, the target future requires a significant shift in trajectory, and as a consequence the outcomes are less predictable, then the pull approach is more appropriate.

Final thought

Organisations consist of people who think and act based upon their experience, knowledge, beliefs and values. They respond to events in the best way they know how and aim to deliver value in everything that they do. But over time their actions can become habits that collectively determine the trajectory of the organisation – a trajectory taking it to its default future. The role of leaders is to understand this trajectory and decide what choices and actions need to be taken to shift the current trajectory to one that is closer to the trajectory of strategic opportunity.

Key points revisited

Our point of view on the purpose of strategy can be summarised as follows:

All organisations are on a trajectory to a default future – the place they will end up if they take no action other than those currently planned.

The purpose of strategy is to shift this trajectory (of strategic reality) to one that is closer to the trajectory of strategic opportunity.

There are two gaps to close, not one. The first gap – between the trajectory of strategic opportunity and trajectory of strategic intent – is closed by developing the ability to understand your trajectory of strategic opportunity and the factors driving it.

The second gap – between the trajectory of strategic intent and trajectory of strategic reality – is closed by developing the ability to operationalise strategies.

Developing and operationalising strategies are organisational capabilities that most organisations need to develop.

]]>Digital Strategy – Closing the Gap between Your Current Digital Reality and what is Digitally Possiblehttp://formicio.com/index.php/archives/6838
Sun, 10 Jan 2016 14:26:54 +0000http://formicio.com/?p=6838The world is becoming more digital and, without question, the way we work, communicate, travel, manage our health and are entertained will continue to change at an ever-increasing pace. As digital technologies continue to advance and become more pervasive, they …]]>The world is becoming more digital and, without question, the way we work, communicate, travel, manage our health and are entertained will continue to change at an ever-increasing pace. As digital technologies continue to advance and become more pervasive, they challenge our thinking on how our organisations could and should operate. The question, therefore, is not whether our organisations should become more digital, but to what extent and at what pace?

For most organisations the gap between what’s digitally possible and their current digital reality is widening. As digital technologies continue to advance they create new digital possibilities which, in turn, increases demand to digitally automate and, increasingly, digitally disrupt the way our organisations operate. This in turn places greater pressure on our ability to turn digital potential into digital reality. Many organisations have started to take action to close these two important gaps, including appointing a Chief Digital Officer, launching digital pilots, acquiring ‘pure-play’ digital organisations and participating in digital technology study tours. While these and other actions will contribute to closing the gaps, the question is whether they will do so at the pace needed.

Closing the ‘digital gaps’ is about taking action to change the trajectory of your organisation to one that is more digital. All organisations are on a trajectory; it’s the path that is taking them from where they are now to a future state. Organisational trajectories are a manifestation of organisational strategies – strategies that have either been intentionally defined or have evolved over time. If you want your organisation to be more digital then you need to ensure that your strategy is sufficient to shift your organisation’s trajectory.

Our experience, and one that we explore in this slideshow, is that executives often underestimate the challenge of shifting the trajectory of their organisation, particularly when it comes to understanding the influence of their existing organisational capabilities. Only by having the necessary digital organisational capabilities in place will your organisation be able to successfully change its trajectory to one that leads to a more digital future.

In this Point of View we explore the important difference between digital automation and digital disruption, and the digital organisational capabilities needed to successfully shift an organisation’s trajectory to one that leads to a digital future.

]]>Experiential Learning Journeys: A Source of Shared Insights and Collective Leadershiphttp://formicio.com/index.php/archives/6774
Sat, 03 Oct 2015 18:02:40 +0000http://formicio.com/?p=6774In this article, Peter Boggis and David Trafford argue that deploying the principles of experiential learning through one or more ‘Learning Journeys’ is an effective way of developing collective leadership from the shared insights and experiences gained. They also help …]]>In this article, Peter Boggis and David Trafford argue that deploying the principles of experiential learning through one or more ‘Learning Journeys’ is an effective way of developing collective leadership from the shared insights and experiences gained. They also help executives gain the collective capabilities needed to assess the effectiveness of current strategy, explore different strategies and successfully operationalise their chosen strategy.

All organisations are on a trajectory to a given future, preferably one that is better than today’s. This trajectory is a manifestation of their strategy; a strategy that has either been intentionally and explicitly defined or evolved over time. But how can executives be sure that their strategy will be successful? If the purpose of strategy is to significantly change their organisation’s trajectory, how can they be sure that this will happen? Equally, if in assessing their current strategy they conclude that a new one is required how can they be sure that it will in reality be any better? And, if they believe their current strategy will put them on the correct trajectory how can they be sure it will be successfully implemented and the targeted outcomes sustained over time?

These are some of the strategic challenges executives continually face – and they do this in the knowledge that few strategies actually achieve their target outcomes. So, what can be done to increase the chances of success?

In this article we will explore how Experiential Learning Journeys can help executives gain the insights needed to assess their current strategy, explore options when developing new strategies, and identify the organisational capabilities needed to successfully operationalise their chosen strategy. Firstly, let us begin by describing what we mean by experiential learning.

Our most effective learning comes from what we experience

The fundamental concept of experiential learning can be traced back to around 350 BC to Aristotle’s Nicomachean Ethics: “For the things we have to learn before we can do them, we learn by doing them”. This concept is reinforced by the ancient Chinese philosopher Confucius:

“I hear and I forget.
I see and I remember.
I do and I understand.”

More recently Benjamin Disraeli, the British Prime Minister from 1874 to 1880, is quoted as saying “Experience is the child of thought, and thought is the child of action – we cannot learn from books.”

Experiential learning or ‘learning by doing’ is very different to rote or didactic learning, in which the learner plays a comparatively passive role; it is particularly effective for intelligent, highly-educated and experienced people. Its power can easily be illustrated by asking a colleague: “what were your most powerful learning experiences?”. Over the years that we have asked this question of executives, no one has ever mentioned their time at university (though many lessons of life are learned during this period), a conference they attended or a training course they undertook. Without exception, they referred to times when they faced a really challenging situation, one that took them way out of their comfort zone and stretched them both intellectually and emotionally. They will often refer to the fact that they were learning with others whilst being challenged to deliver something important – for example, launching a new product, integrating a new acquisition or dealing with a difficult client situation.

The seminal work of David Kolb in the 1980s taught us that we continuously learn through a four‐stage cycle of; Concrete Experience > Reflective Observation > Abstract Conceptualisation > Active Experimentation. In other words, we see something, we think about it, we consider how we might apply it to our situation and we try it – we learn through experience.

Colin Beard and John P Wilson’s work on experiential learning resulted in a conceptual model they call learning combination lock. The model comprises six tumblers that represent the complexity of the many possible experiential choices available. From a philosophical perspective the tumblers represent belonging, doing, sensing, feeling, thinking and being. Their argument is that learning experiences can be designed by selecting different learning combinations.

Learning Journeys deliver shared learning experiences

While individual learning is important, shared learning is critical when it comes to developing collective leadership. Collective leadership is when a leadership team is aligned. This is not to say that they always agree or that they have the same background or education. Alignment is an outcome resulting from a shared process: a process we call a Learning Journey that comprises shared learning experiences. As we will discuss later, this alignment and resulting collective leadership is a key condition for success when it comes to assessing, developing and operationalising strategy.

Learning Journeys are based upon the principles of experiential learning and are designed to achieve specific learning outcomes; for example shared insights on specific industry trends; technologies that will have a profound impact on how we do business or the capabilities needed to operationalise a given strategy. Through shared experiences and reflective discussion, participants begin to see the world differently, their perceptions change, new insights are gained and greater alignment is created.

Depending upon the challenges faced by a leadership group, a Learning Journey could take several weeks or months. Its duration depends entirely upon the urgency to learn and the time the group is willing to give to the journey. While all custom-designed Learning Journeys are different, they tend to comprise the following seven stages:

Individual perspectives: The purpose of this initial stage is to allow participants to reflect on how they see their organisation’s default future – which is the place their organisation will end up if no action is taken other than that currently planned. If the default future is aligned with their target future, and they are confident it can be achieved, the case for learning is less than when the default future is an unacceptable destination.

Dialogic self-assessment: The purpose of the dialogic assessment is threefold. Firstly, to capture the participants’ assessment of the organisation’s ability to develop or implement strategy. Secondly, to capture their level of understanding of the relevant domains of knowledge and practice, eg digital business. And thirdly, to stimulate dialogue on the degree to which they are aligned and the reasons for any misalignment.

Study visits: Where participants see first-hand how other organisations – both inside and outside their industry – are addressing similar challenges.

Reflect and abstract: Having visited and observed a number of leading organisations, the underlying principles by which they operate are identified (abstracted). It is important to remember that all practices are based upon principles, and it’s the application of a principle in a specific context that establishes practices. For this reason principles are transferable whereas practices are often not.

Simulate: Having identified the relevant principles, their impact is simulated within their own context. For example, if the aim was to change the organisation’s current trajectory, a simulation would answer the question “how would the application of these principles change the organisation’s trajectory to that needed?”. Ideally a number of different scenarios would be simulated and evaluated.

Apply: Based upon the outcome of the simulations, the chosen principles would be applied for real in the organisation.

Evaluate: The purpose of the final stage is to evaluate the degree to which the chosen operating principles are actually changing the organisation’s trajectory, and, where necessary, make any mid-course corrections.

By their very nature, Learning Journeys need to be adaptive. Yes, they need to be planned from the outset, but like any other journey, things happen: participants experience the unexpected; their perceptions change as a result of insights gained; and business priorities impact on timelines. Learning Journeys are most effective when they not only impart knowledge, but change the participants’ perception of the world and the role they need to play within it. Learning Journeys can be life-changing if participants embrace the possibilities they offer.

The role of Learning Journeys in strategy

When it comes to strategy, collective leadership is critical. Gone are the days when strategy was developed by the few and ‘shared’ via PowerPoint presentations. Today the world is very different: markets are continually changing, customers are no longer loyal, technology drives innovation, sourcing is done globally and the war for talent is getting tougher. As a result, strategies need to be refreshed on a continuous basis and their successful implementation is dependent upon the contribution of virtually everyone in the organisation. This needs a level of executive alignment and collective leadership not typically seen in most organisations.

Experiential Learning Journeys, ideally for the extended leadership team, can play an important role in creating the insights needed to assess the effectiveness of current strategy, developing alternative strategies or operationalising a chosen strategy.

Assessing current strategy
As previously discussed, all organisations have a strategy. Some strategies are intentionally and explicitly defined, while others evolve over time. The question is to what extent is the organisation’s current trajectory aligned with their strategy, and to what degree is the strategy controlling the trajectory?

The reality is that few strategies achieve their target outcomes and the default future of an organisation – which is the place they will end up if no action is taken other than that currently planned – is often very different to that intended. The question is why?

All too often strategies are developed in a vacuum and do not adequately consider the forces determining the organisation’s default trajectory. Some of these driving forces are comparatively easy to observe, like technology and regulation, while others, like mindsets, values and culture, are often not so apparent at first sight. Only by identifying these forces and assessing their impact can the effectiveness of a given strategy – in terms of its impact on changing an organisation’s trajectory – be effectively assessed.

Experiential Learning Journeys that comprise visits to outside organisations such as technology vendors, laboratories and organisations in different sectors can give insight into the impact that the driving forces are having, and are likely to have in the future. Such visits should not be confused with best-practice visits as the aim is not to copy but to understand what is driving your industry, and the possible implications for your organisation.

Below we describe a type of Learning Journey that is often called a Technology Study Tour. The purpose of these tours – that can either be for single or multiple organisations – is to get insight into how emerging technologies are changing the context – and by implication the default future – of organisations.

Case Study: Technology Study Tours

One of the most effective ways of understanding how technology impacts an organisation’s default future is by participating in a Technology Study Tour.

Often organised by technology vendors or independent research firms, they provide insights into the potentially disruptive impact of emerging technologies.

They can either be multi-company, where executives from a number of companies participate, or custom-designed for a single company. They typically include visits to research centres, technology vendors or organisations using technologies innovatively. Historically, they have focused on US organisations, particularly those in Silicon Valley, but more recently include visits to new and emerging economies such as India and China.

Following such a Learning Journey, business and technology executives are in a better position to assess their current strategy and explore the impact that emerging technologies might have on their default future. They are also an effective way of understanding what capabilities their organisation will need to acquire if they choose to develop a strategy based upon what these technologies offer.

Developing strategy
Developing strategy is essentially about making informed choices that, when implemented, will change the trajectory of an organisation – away from its current default future. Essentially it’s about deciding how the organisation needs to operate in the future. Equally important is making explicit what it should stop doing as all too often strategies are additive and fail to clearly articulate that the intent is for the organisation to do ‘this’ and stop doing ‘that’.

If strategy is essentially about making informed choices, then these choices are best articulated through a set of operating principles, where a principle is defined as a ‘conscious choice between two equally valid alternatives’.

The power of articulating strategy through a set of operating principles is that it makes the strategy meaningful to people throughout the organisation. It shows them which choices have been made – and those that have been rejected. It also defines how the leadership expects the organisation to operate in the future and provides guidance on how everyone can contribute through the decisions they make and actions they take.

Experiential Learning Journeys are a powerful way of exploring alternative operating principles, whether with respect to market segments; products and services; processes; organisation, sourcing or culture. They are also an effective way of ‘experiencing the future today’ by ‘simulating’ the outcome of a given strategy before the final decision is taken to implement. Not only does simulating the future develop deeper understanding, it also triggers ideas that can improve the strategy.

The case study below describes the Learning Journey undertaken by the Liverpool Heart and Chest Hospital, where the new Chief Medical Officer took his colleagues to the USA to get a shared understanding of what a strategy based upon ‘patient experience’ would mean for their hospital.

Case Study: Strategic Alignment on a Target Improved Future

The Chief Medical Officer at the Liverpool Heart and Chest Hospital (LHCH) – a world-class centre of excellence for cardiac and thoracic research and treatment in the UK – recognised that if the hospital wanted to take patient care ‘to the next level’ a different strategy was required. Having spent some time working in the USA and knowing of the work of several clinics – most notably the Mello Clinic, which has twice been featured in the Harvard Business Review

Operationalising strategy
Once a strategy is accepted, the focus usually moves to implementation or, as we prefer to call it, operationalising it. The assumption is that if the changes outlined in the strategy are implemented, the organisation’s trajectory will change and the target future will be realised.

The main weakness of this approach is that it assumes organisations are deterministic and ‘programmable’. Yet we all know that this is not the case. Organisations are not predictable, particularly at times of significant change; they are dynamic systems that respond – often in unforeseen ways – when attempts are made to change them. As a consequence, an implementation plan is always out of date. And what is more, having such a plan can lead people to believe that it is someone else’s responsibility to action it: namely the people implementing the plan.

An alternative approach – and the one that we strongly advocate – is to pull the present into the future. With this approach the organisational capabilities needed in the future state are put in place from the outset, thereby enabling the organisation to ‘pull’ itself into its target (improved) future. It’s important to note that organisational capabilities are more than the sum of individual skills and competencies. They are formed from a combination of shared mental models; common language; mindsets; processes; established practices; conventions; shared experiences and skills. Once developed, they shape the ‘way we work around here’ and if not addressed can ‘anchor’ an organisation to its current trajectory.

Experiential Learning Journeys are a powerful way of identifying the organisational capabilities needed in the future state and, as equally important, how they can be best developed or acquired.

The case study below describes a Learning Journey undertaken by a major German life, property and casualty insurer. In the course of developing a new strategy, the CEO recognised that the company did not have the necessary organisational capabilities needed to successfully implement it. He therefore commissioned a Learning Journey, principally for his extended leadership team, aimed at developing both the necessary capabilities and collective leadership.

Case Study: Developing the Capabilities to Operationalise Strategy

Having developed a new strategy, the CEO of a major German life, property and casualty insurance company realised that they did not have the organisational capabilities needed to successfully operationalise it. Having experienced the power of experiential learning for himself some years earlier he commissioned a custom-designed Learning Journey for his extended leadership team.

The aim was to develop new insights into the strategic shifts the strategy was to deliver and seed the development of new organisational capabilities across the organisation. Some 35 executives and future leaders of the different businesses undertook the journey over a three-year period. The focus was on developing core capabilities in innovation, delivering compelling customer experiences, horizontal integration, shared services and IT transformation.

The Learning Journey included one-on-one interviews, working sessions, study tours to the USA and application workshops. Over the three years some 20 different organisations from within and outside their sector were visited. After each visit, participants reflected on their individual and collective insights and experiences, and challenged themselves to decide how what they had learned could best be applied in their particular context. They subsequently led some of the largest transformation programmes in the industry.

A further benefit was that the 35 leaders created a powerful community that meets three times every year to challenge current strategies in a safe environment. They also developed levels of trust and confidence and were able to ask one another for help, which was unprecedented in the context of a traditional, conservative German insurance group. One of the executives described the shift as follows: “Before this Learning Journey we used to address one another as “Herr Doctor” and use the “Sie” (formal) term; after this set of shared experiences, we now address one another by our first names and use the term “Du” (informal) instead of “Sie”.

Final thought

In today’s world organisations need to continually re-evaluate and refresh their strategies; they need to continually gain new insights and develop new organisational capabilities. In effect assessing, developing and operationalising strategy needs to become an organisational capability in itself, and Experiential Learning Journeys are an effective way of developing this capability.

Key points revisited

Our point of view on how Experiential Learning Journeys can help executives assess, develop and operationalise strategy can be summarised as follows:

Highly intelligent, well-educated and experienced people learn best through what they experience.

While individual learning is important, shared learning is critical when it comes to developing collective leadership.

Learning Journeys – based upon the principles and best practices of Experiential Learning – are a powerful way of developing collective leadership from the shared insights and experiences gained.

Experiential Learning Journeys, ideally for the extended leadership team, can play an important role in developing the collective capabilities needed to assess the effectiveness of current strategy, explore different strategies and operationalise a chosen strategy.

Assessing, developing and operationalising strategy needs to become an organisational capability in itself, and Experiential Learning Journeys are an effective way of developing this capability.

References

Experiential Learning: Experience as the Source of Learning and Development. David A Kolb, first published by Pearson Education in 1983 and the second edition in 2014.Experiential Learning: A Handbook for Education, Training and Coaching. Colin Beard and John P Wilson, first edition published by KoganPage in 2002 and the third edition in 2013.

]]>The Impact of Organisational Capabilities on Project Successhttp://formicio.com/index.php/archives/6738
Mon, 10 Aug 2015 19:53:51 +0000http://formicio.com/?p=6738Delivering projects – particularly those aimed at implementing strategy – remains a challenge, one where the success rate has not improved over the past 25 years. Numerous studies confirm what we already know, that in all probability your project will …]]>Delivering projects – particularly those aimed at implementing strategy – remains a challenge, one where the success rate has not improved over the past 25 years. Numerous studies confirm what we already know, that in all probability your project will not deliver its intended outcomes. According to John P Kotter, Professor Emeritus at the Harvard Business School, only about 5% of large-scale transformational change projects are successful.

Many explanations are given, and as many solutions offered – most of them focused on improving the ‘mechanics’ of project management and the skills of project managers. While these are necessary they are not sufficient as they do not address the underlying reasons why most projects fail to deliver their intended outcomes, namely that insufficient attention is given to the embedded organisational capabilities that define an organisation’s trajectory. After all, the purpose of strategy implementation projects is to change the trajectory of the organisation – and increasingly that of its partners, as is often the case in joint ventures.

When a strategy implementation project comes up against organisational capabilities that are not aligned with its target trajectory, it will inevitably fail, either because they were not considered at all or their impact underestimated. These organisational capabilities are often described as the organisation’s ‘antibodies’ to change. Some organisational capabilities are easily recognisable, while others only become apparent when they are experienced. Successfully changing an organisation’s trajectory therefore involves introducing new organisational capabilities, strengthening others and ‘retiring’ some.

In this Formicio Point of View we define what we mean by organisational capabilities and how they determine an organisation’s trajectory. We also introduce a simple method for assessing their impact.